ASB now expects the Official Cash Rate (OCR) to stay at 0.25% until mid-2023, and is no longer anticipating a negative OCR to be implemented this year.
Chief economist Nick Tuffley says the resilience of the New Zealand economy and the Reserve Bank’s Funding for Lending Programme will be enough to keep interest rates low, however he admits that the outlook is “highly uncertain, with scope for heightened volatility over the next few months.”
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“The most astonishing thing about 2020 was that – for all the upheaval globally – New Zealand’s economy rebounded sufficiently strongly in the September quarter (+14%!) that GDP is now higher than it was at the end of 2019,” Tuffley commented.
“That is a milestone we hadn’t expected for some time. The bounce also puts us firmly ahead of many of our key trading partners.”
“For 2021, we expect muted growth, somewhere around 1-2% in annual terms,” he added. “Vaccination will still take a while to roll out in NZ and globally, leaving vulnerabilities in place and ongoing restrictions at our border. Vulnerabilities remain, and, in 2021, vigilance will remain the price of liberty from COVID-19.”
The Fundmaster founder Dev Dhingra said the strength of the property market has been “good news” for New Zealand, and is advising undecided first home buyers to “get off the fence” and look seriously at getting on to the property ladder - especially as competition looks only set to grow.
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“A lot of people had been sitting on the fence, especially first home buyers, but I would definitely say that now is the time to get off that fence,” Dhingra commented.
“Going by the historical data, we can expect competition in the Auckland market to double in 10 years. But I also warn my clients not to over-commit, and not to extend themselves so much that they end up unable to repay while also saving money.”
“The property market has meant that some people are far away from homeownership in terms of budgeting, but it has also made people get more aggressive in their strategy to buy a house,” he added. “I think it’s good news for the country overall.”